OFAC Reaches $7.5M Settlement With Crypto Platform

The company started business in 2014 but didn’t establish a sanctions compliance program until 2015, OFAC said. The program screened new customers but didn’t “retroactively” check existing customers. “As a result, customers who had self-identified before May 2015 as residing in a sanctioned jurisdiction” were “generally able to continue using Poloniex’s platform,” OFAC said.

As part of its compliance program, Poloniex began monitoring IP address data to detect logins from sanctioned jurisdictions, conducting “additional diligence” on those logins and closing certain accounts “based on that diligence,” the agency said. But it didn’t place a “block” on those accounts’ IP addresses until June 2017. The company “made efforts” to limit accounts with a nexus to Iran, Cuba, Sudan, Crimea and Syria, but some customers in those regions were able to continue using the trading platform, OFAC said.

The agency said Poloniex’s compliance controls “began to substantially reduce the rate” of the alleged violations, but some continued, including violations related to a “small number of accounts opened by persons then located in Crimea.” OFAC said Poloniex operated the trading platform until it was sold in 2019, and the company is now owned by a consortium of entities, which includes backing from Justin Sun, founder of crypto platform Tron, according to CoinDesk.

OFAC said the platform processed about 65,000 digital asset-related transactions that involved accounts in sanctioned jurisdictions, mostly in Crimea but also in Cuba, Iran, Sudan and Syria. The agency could have imposed a maximum penalty of about $20 billion but settled on a lesser fine because the case was non-egregious. OFAC said Poloniex hadn’t received a penalty notice in the previous five years, was a “small start-up” at the time of most of the alleged violations, provided “substantial cooperation” with OFAC’s investigation, and many of the transactions were for a “small amount” and represented a “very small percentage” of the platform’s total annual transactions.

The agency also pointed to steps the company took to improve its compliance program. Poloniex was bought by Circle Internet Financial in 2018, which introduced a range of new measures, including freezing users’ accounts until a know-your-customer verification was completed, automated reviews and a verification tool for identity documents, a protocol that prevented users from activating an account if the profile information matched a sanctioned country, closing any accounts that listed “Crimea” in the profile information, creating a “Crimea IP blacklist” and hiring more compliance employees.

OFAC said the settlement highlights that digital-asset trading companies should develop a “tailored, risk-based sanctions compliance program,” especially because many crypto exchanges are “new companies.” These firms should make sure they’re using “all available location-related information for sanctions compliance purposes and integrating such information into a risk-based sanctions compliance program to mitigate the risk of providing services to persons in sanctioned jurisdictions,” OFAC said. “Companies implementing new compliance controls should also ensure that they apply those controls not only to new customers, but to existing ones as well.”

The $7,591,630 settlement is OFAC’s largest with a virtual currency trading platform since the U.S. fined Bittrex more than $24 million last year (see 2210110031).